FILE – This Wednesday, Feb. 5, 2020 photo shows the W-4 form in New York. The majority of individual taxpayers in the U.S. are eligible to file their taxes for free, yet many may be unaware or confused by how to do so. Improvements have been made and Free File should be easier to use in 2020. But, with tax season getting into full gear, users should be aware of the details of the service and alternatives. (AP Photo/Patrick Sison, File)
Tax season is here and Chip Franklin wants to help KGO listeners avoid an audit. Steve Moskowitz, founder and tax attorney at Moskowitz LLP shares the five most common things that will flag you for auditing by the IRS on The Chip Franklin Show.
Five usual IRS Audit triggers are:
a. An IRS software program reviews 66 different factors and gives them points. Points in DIF, much like strokes in golf, are bad. The higher the points the more “audit potential” the taxpayer is said to have.
a. High Income: The greater the income the more likely an audit
b. Low Income: The lower the income the more likely an audit. There is a suspicion of cash unreported income. The IRS does an “Economic Reality” analysis in an effort to determine how could the taxpayer meet basic living expenses.
c. Standard of living compared to income
d. “Cash” [currency] income
a. The greater the actual deductions the more likely an audit
i. The greater the percentage of deductions is to the income the more likely an audit
b. The greater the deviations from the national averages the more likely an audit
c. The type of deduction. Certain type of deductions are more suspect than others, for example:
i. Home Office
ii. Business Loss
iii. Travel and Entertainment
- AUDIT OF ANOTHER PARTY WITH WHOM YOU DO TRANSACTIONS
a. For example: A company is being audited and you are a customer or vendor.
- “PROBLEM PREPARER PROGRAM”
a. The IRS targets a tax return preparer for wrongdoing and the IRS audits the clients of that tax return preparer. For example, the DIF program notices that a large percentage of the preparers’ clients all have the same or similar deductions.
Listen to the full conversation between Steve Moskowitz and Chip Franklin below.